Don't be tempted by the higher interest that comes with high -
risk junk bonds.
Not exact matches
Although there may not be a
bond bubble, with investors starved for yield, Gundlach predicts a potential bubble could form in credit
risk as investors increase their leverage on riskier debt securities like
junk bonds and emerging market debt.
«It's on the way» to
junk status, said Carlos Gribel, the head of fixed income at private investment bank Andbanc Brokerage in Miami, adding the
bonds still have room to fall before becoming attractive to investors with an appetite for
risk.
NEW YORK, Jan 18 - U.S. fund investors pulled $ 3.1 billion from high - yield «
junk»
bonds during the latest week, Lipper data showed on Thursday, offering new warning signs about
risk appetite despite global markets» continuing triumph.
Investors increasing their current yield by taking credit
risk in
junk bonds have recently learned a similar lesson.
Meanwhile, the spread between riskier «
junk» corporate
bonds and «
risk - free» U.S. Treasurys has dropped since the election even though interest rates generally are rising.
One reason for looking at
junk bonds is that the firms that issue
junk bonds are closer on the
risk continuum to a large mass of firms that are too small and too weak to issue
bonds at all, and that rely on banks or the informal capital market for funds.
While
junk bonds may not represent a systemic
risk as credit derivatives did during the financial crisis, they can be one of the more effective leading economic indicators.
The NY Times aptly reflects the consensus view that there has really been no, «rout,» in the market for
junk bonds and that they don't signal anything more serious for other markets or the economy, as they don't represent a, «systemic
risk.»
However, investors of
junk bonds should note the implications and
risks that are involved with investing in
bonds that are issued by companies with liquidity issues.
With market volatility hitting multi-decade lows,
junk bond yields also at record lows, the median price / revenue ratio of S&P 500 constituents at a record high well - beyond 2000 levels, and the most strenuously overvalued, overbought, overbullish syndromes we define, I'm increasingly concerned about the potential for an abrupt «air pocket» in the prices of risky assets that could attend even a modest upward shift in
risk premiums.
All else equal, unless it possesses some sort of major offsetting advantage that makes the
risk of non-payment low, a company with a low - interest coverage ratio will almost assuredly have bad
bond ratings, increasing the cost of capital; e.g., its
bonds will be classified as
junk bonds rather than investment grade
bonds.
Some 5.7 % of corporate
junk bonds from emerging markets are trading at prices below 70 cents on the dollar, more than double the rate for higher -
risk U.S.
bonds, according to JPMorgan.
The
risk in higher yielding
junk bonds first and foremost is derived from fact that any company paying north of 5 % to issue debt has a high probability of never paying back the investors who by the debt.
I thought
junk bonds were «high
risk — high return» whereas I'd have thought Chicago was more «high
risk — no return.
Investing in high yield fixed income securities, otherwise known as «
junk bonds», is considered speculative and involves greater
risk of loss of principal and interest than investing in investment grade fixed income securities.
The yield required for a low -
risk bond such as a Treasury security will be lower than the yield required for a high -
risk bond such as a
junk bond.
Junk bonds, for instance, are producing a less than pulse - quickening yield of 6 % which, adjusted for defaults (likely to explode during the next recession), isn't worth the
risk — save in a few special situations.
Further, with
junk grade defaults at negligible levels today, even higher
risk bonds have not posed significant problems — although that does not always have to be the case.
Now, with the magic of QE2, the Fed wants to drive long - term rates down to unseen levels and push all Treasury investors (short or long) towards higher -
risk assets —
junk bonds, real estate, stocks, and commodities.
Yet,
bond investors have only piled on more
risk, from record growth in high -
risk, covenant - lite loans to leveraged - loan funds holding billions in collateral in over-indebted retailers to sustained lows in
junk bond yields.
Yeah, investors often confuse yield with fixed income
risk, but I agree that
junk bonds are much closer to stocks from a
risk perspective.
Most
bonds (not
junk bonds) represent a less risky investment than most stocks, which means that stocks have to offer a higher return as a premium for increased
risk.
The investor should note that vehicles that invest in lower - rated debt securities (commonly referred to as
junk bonds) involve additional
risks because of the lower credit quality of the securities in the portfolio.
Investments in high - yield («
junk»)
bonds involve greater
risk of price volatility, illiquidity, and default than higher - rated debt securities.
What we're seeing here — make no mistake about it — is not a rational, justified, quantifiable response to lower interest rates, but rather a historic compression of
risk premiums across every risky asset class, particularly equities, leveraged loans, and
junk bonds.
There are various ways to participate in the
Junk Bond rally that is just underway - from purchasing individual corporate
bonds to diversifying
risk with double - digit yielding
Bond ETFs, Mutual Funds and individual corporate paper.
For example, in a world where short - term interest rates are zero, Wall Street acts as if a 2 % dividend yield on equities, or a 5 %
junk bond yield is enough to make these securities appropriate even for investors with short horizons, not factoring in any compensation for
risk or likely capital losses.
These
risks increase with high - yield, or so - called «
junk,»
bonds.
This
risk is higher when investing in high yield
bonds, also known as
junk bonds, which have lower ratings and are subject to greater volatility.
High - yield
bonds (also known as «
junk bonds») may be subject to greater levels of interest rate, credit, and liquidity
risk than investments in higher rated securities.
Non-investment-grade debt securities (high - yield /
junk bonds) may be subject to greater market fluctuations,
risk of default or loss of income and principal than higher rated securities.
Take on more
risk, say munis or longer - term
junk bonds, and you may seem to do better until the chickens come home to roost (as happened to the banks in 2008.)
Bonds are rated by agencies like Moody's and Standard and Poor's from AAA to
junk bond as a gauge of the level of counterparty
risk.
Most
bonds (not
junk bonds) represent a less risky investment than most stocks, which means that stocks have to offer a higher return as a premium for increased
risk.
As a young person with high
risk tolerance I am completely invested in stocks now, as
bonds are pretty
junk to me right now at these levels.
U.S.
junk bonds continue to have no stink to them as demand for yield far outweighs the supply and seemingly the credit
risks associated with these
bonds.
However, this has also earned them the nickname of «
junk»
bonds because of their higher
risk of default.
Also, for
junk bonds you HAVE to diversify quite a lot, because the reward for the extra
risk is only for the part of the
risk that can not be diversified away.
However, many experts feel yields on «
junk bonds» don't justify the
risk at this time.
High - yield, lower - rated («
junk»)
bonds generally have greater price swings and higher default
risks.
High - yield
bonds (also known as «
junk bonds») are subject to additional
risks such as the
risk of default.
High - yield («
junk»)
bonds involve greater
risk of price volatility, illiquidity, and default than higher - rated debt securities.
Lower ‐ quality fixed income securities, known as «high yield» or «
junk»
bonds, present greater
risk than
bonds of higher quality, including an increased
risk of default.
It doesn't matter if you measure
risk by standard deviation of returns, beta, or credit rating (with
junk bonds).
@Jerry, I agree that today the main
risk in
bonds is duration
risk (AKA interest - rate
risk)-- last weekend's Barron's has an interview with the UBS Wealth Management top managers pointing out this means convincing investors to switch from Treasuries and investment - grade corporates to well - selected
junk (HYLD is a jewel there — DO N'T go for index funds in
bonds, very differently from ones in stocks they make no sense... where's the sense in wanting to lend more to companies which are more indebted?!
High - yield
bonds, also referred to as «
junk bonds,» offer higher rates of return, and therefore carry a higher rate of
risk, than investment grade
bonds.
When
risk - free and AAA - rated corporate
bonds yield less than 4 %, 3.5 % yield on utilities and 6 % yields from
junk ETFs are difficult to pass up.
Remember, though
junk bonds are fixed income, their
risk characteristics make them more similar to equities.
Junk bonds carry higher default
risk and are thus far more sensitive to the health of the economy than investment - grade
bonds.